7/24/2024

Gold and silver trade higher for a second session

OUTSIDE MARKET DEVELOPMENTS: President Biden is expected to address the Nation from the Oval Office this evening. He presumably will be talking about his decision to not seek reelection.

Israeli Prime Minister Benjamin Netanyahu is in DC and will address a joint session of Congress this afternoon in hopes of shoring up support for Israel's ongoing war against Hamas. He will likely receive a mixed reaction, with some Democrats planning to boycott the event. Netanyahu's visit has triggered protests that have already resulted in hundreds of arrests.

Netanyahu is scheduled to meet separately with President Biden and VP Harris on Thursday. He may meet with former President Trump as well.

Eurozone composite PMIs fell to 5-month lows. Weakness in both manufacturing and services lends credence to expectations that the ECB will cut rates again in September.

UK PMIs on the other hand came in strong. Manufacturing PMI rose to a 24-month high of 51.8. Services PMI reached a 2-month high of 52.4. This supports forecasts that suggest the BoE will remain on hold in August.

U.S. PMIs were a bit of a mixed bag: Manufacturing PMI tumbled to a 7-month low of 49.5 in July, versus 51.6 in June. It was the first sub-50 print this year. Services PMI rose to 56.0, versus 55.3 in June.

In a Bloomberg opinion piece, former NY Fed President Dudley said the Fed should cut rates at next week's meeting.  Dudley warned that it may already be too late to "fend off a recession" implying that the Fed is behind the curve.

While Dudley's comments nudged July rate cut potential up to 6.7%, I believe the Fed will hold steady next week. Barring any upside surprises in inflation data leading up to the September FOMC meeting, that's when the Fed's easing campaign is most likely to commence. Fed funds futures have that fully priced in at this point.

The U.S. Advanced Goods Trade deficit narrowed to $96.8 bln in June, inside expectations of -$98.0 bln, versus a revised -$99.4 bln in May (was -$100.6 bln). The deficit remains on a narrowing path from the -$121.2 bln all-time wide in March of 2022.

U.S. new home sales rose 0.617M in June, below expectations of +0.643M, versus a revised +0.621M in May. This is the slowest pace since November as high mortgage rates continue to weigh on the market.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$4.91 (+0.20%)
5-Day Change: -$36.44 (-1.48%)
YTD Range: $1,986.16 - $2,481.63
52-Week Range: $1,812.39 - $2,481.63
Weighted Alpha: +26.23

Gold is trading higher for a second session buoyed by some risk-off sentiment in stocks and a weaker dollar. More than 38.2% of the decline from last week's record high at $2,481.63 has already been retraced, lending credence to a challenge of the 50% retracement level at $2,433.56.



Corrective action in gold has been limited by strong expectations that the Fed will begin easing in September. Two rate cuts are widely anticipated for this year. 

Treasury yields are under pressure today, which has pushed the dollar index to new lows for the week. The softer dollar is helping to underpin gold as well.

Elon Musk took to X yesterday and warned that the dollar is heading for "destruction" and that the soaring $35 trillion national debt could "bankrupt" the U.S. While interest rate differentials are likely to support the dollar comparatively in the medium term, the longer-term trend is decisively bearish, providing a tailwind for gold as a means to preserve wealth. 

A recent Mining.com article highlighted gaps between consumer gold demand and mined production in some countries.


Data source: World Gold Council, tabulated by The Gold Bullion Company

Consumer demand in India, China, Turkey, and the U.S. exceeds production, meaning that demand needs to be satisfied with supply from elsewhere. Q1 data from the WGC shows global demand of 1.101.9 tonnes and the sum of mine production and recycled gold at 1,243.8 tonnes. That's just shy of a 13% surplus.

India is the world's second-largest consumer of gold but does not produce much. India's cut of import duties on gold to 6% from 15% and expectations for an above-average monsoon could boost demand and support the price.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.079 (+0.27%)
5-Day Change: -$0.947 (-3.12%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +25.19

Silver eked out a higher close on Tuesday as I had hoped, ending the series of lower closes at four. Modest upside follow-through is being seen today, but momentum remains lackluster.



I still think silver needs to regain $30 to encourage the bull camp and shake out some of the shorts. More important resistance is marked by the 20- and 50-day moving averages that now come in at $30.141 and $30.209 respectively. Such a move seems unlikely today, so let's see if there's additional upside follow-through on Thursday.

Failure to close higher today would suggest that the downside and important support at $28.618 remains vulnerable to challenges. Yesterday's low at $28.723 reinforces this level.

Data from China's National Energy Administration show that 23.3 GW of solar energy was installed in June, +36% y/y. More than 100 GW of solar capacity was added in H1, +31% versus H1-23. In addition, global electricity demand is forecast to increase by approximately 4% this year according to the International Energy Agency. The comprehensive supply/demand dynamic for silver remains broadly supportive suggesting the recent price decline is corrective.


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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